The software industry continues to evolve at a rapid pace but one thing has remained unchanged — every few years a new category is created and when that happens, a whole lot of companies try to join the bandwagon and ride the wave.
In the past, this has happened with the CRM and Email Marketing categories with new players entering the market ever so often. Today, the same is happening with a variety of categories that include No-code, Team Communication, Remote Collaboration, and of course, Customer Data Platform, also known as CDP.
Just a hot category or something more?
The funny thing about a hot new software category is that besides those who actually helped build the category through innovation and research — like Segment and mParticle created the CDP category — a bunch of other companies simply switch their positioning to be included in that category.
These companies add a couple of new features or sometimes even just rename existing ones to ensure that experts don’t challenge their position. This is precisely what is happening with the CDP category — a whole lot of companies that enable one to act upon customer data are now calling themselves Customer Data Platforms.
Intercom, the popular customer engagement platform that offers live chat, support, and marketing tools, is now calling itself a Conversational Relationship Platform — a new category called CRP? 😱
More interestingly, one of its key features is Customer data platform.
A platform whose key feature is also a platform.
And Intercom’s definition of CDP is “easily segment, target, and personalize your messages using rich behavioral data and attributes.”
But technically speaking, a CDP does a lot more than that.
I’ve digressed enough but the point I wanted to make is that there is no single concrete definition of what a Customer Data Platform is and the fact that it is a growing category only makes it susceptible to triteness.
So what exactly does a Customer Data Platform do?
In essence, a Customer Data Platform enables companies to collect and collate customer data from different sources, clean and organize that data, and then send that data to different destinations. 🖇️
Sources and destinations are key when it comes to understanding what CDPs really do, but more on those in a bit.
Simpler than it sounds
Let’s look at an analogy that will help understand the purpose of a CDP better. 🦠
Imagine a global pandemic is in force and millions of people have been brought down to their knees. However, there are a whole lot of privileged folks who want to try and help and are willing to donate all kinds of goods for the benefit of those in need.
But there is a problem — the folks who want to help can only offer to donate and cannot take care of the logistics of segregating and disseminating the goods. On the receiving end, not everybody needs the same things; some need clothes and essentials, while others need medicine and monetary help.
The solution is to have an intermediary that takes care of the collection (from the sources willing to donate), classification (based on the type of goods), as well as the distribution (to the different destinations as per their requirement).
Data in, data out
A Customer Data Platform acts as an intermediary — it gathers customer data from various sources and sends to a host of destinations.
In simple terms, a data source is where data originates. Common sources include websites, web and mobile apps, advertising channels, surveys, support systems, points of sale, and other third-party tools used for sales and marketing.
A data destination is any third-party service where a CDP sends data for storage, analysis and action.
Interestingly, all of the sources mentioned above are also potential destinations where data from other sources are sent to enable personalized experiences and communication.
Besides these, common destinations include data analysis and business intelligence tools as well as storage systems such as data warehouses and data lakes.
More than a middleware
While the primary purpose of a Customer Data Platform is to move data between tools, it is more than just an intermediary or middleware. It also acts as a repository for all of this crucial data, enabling different teams in a company to access the data whenever a need arises. 🗃️
For instance, when the marketing team decides to explore Pinterest advertising and wants to target a specific set of users based on their past activity, the team can easily create an audience inside the CDP by combining user attributes, events, and data from other campaigns, and pipe this information to Pinterest. Easy peasy!
Additionally, a CDP is able to create unified customer profiles that allow companies to view all activities of a customer in one place. While in theory this sounds great, in practice, nobody has the time to sift through the activity of each customer; therefore, having a “single view of the customer” should not be the reason to adopt a CDP.
As per mParticle, a leading CDP catering to the likes of Spotify and Airbnb, “simply having a unified customer database isn’t enough; you need to be able to use that database effectively.”
OK great! But do we really need a CDP?
The short answer is “probably”.
However, growing companies that have the resources to experiment with new channels and want to empower their marketing and growth teams to move fast without relying on engineering, definitely need to adopt a Customer Data Platform. 🕹️
If you are still unsure of investing in a CDP, talk to different teams at your company to understand their challenges working with data.
Ask your marketing folks if they face problems consolidating customer data from different sources and acting upon that data efficiently.
Ask your data engineers if their lives will become easier if they don’t have to repeat the drill of manually sending data every time the marketing or growth team decides to adopt a new tool.
Many people at your company might not even know that a Customer Data Platform can elegantly solve many of their day-to-day challenges and rid them of their data woes.
Lastly, ask yourself if maintaining data integrity is a priority for your business — if the answer is “yes”, then the answer to your question whether you need a CDP or not is also a resounding “yes”.
Yes, you need a CDP! ✔️
How to choose the right Customer Data Platform?
Now we’re talking! 😃
What is common between an early-stage SaaS startup, a growing e-commerce brand, and an enterprise in the FMCG space? They all might need a CDP.
However, just like not every email marketing tool is suitable for someone looking for an email marketing tool, not all CDPs are created the same.
And if you have ever bought a piece of software, you should know that no one product can or even should cater to the needs of companies of all sizes belonging to diverse industries.
If you go down the rabbit hole and try to understand every little detail about a CDP, you will find that every CDP offers something that others do not. As a matter of fact, this is true of every tool out there.
Below are some important considerations when deciding which Customer Data Platform is right for you:
First-party data sources
Is there native support for your first-party or primary data sources? ⚙️
However, if you have apps for connected platforms such as Alexa, Xbox, or Roku, you need to keep in mind that not all CDPs support these platforms natively.
Let’s look at the primary data sources offered by two popular Customer Data Platforms — mParticle and Segment.
Are there robust, well-documented integrations with third-party cloud applications that you use and will they serve your needs? 🛠️
Chances are that the apps you use are already tightly integrated with the CDPs you are evaluating. Both Segment and mParticle offer integrations with a host of analytics and marketing tools as well as raw data processing services.
If you are using a lesser-known app and don’t see a native integration with it, you can still send data to it via Webhooks or an integration platform such as Integromat or Zapier.
But do keep in mind that both of these options will require additional resources and it might be worth requesting a native integration before purchasing a license from a CDP provider.
On the other hand, even if you find integrations with all the cloud services in your repertoire, it is important to look at the depth of each integration to ensure that your requirements are met.
For instance, if you use Mixpanel for product analytics, sending data to Mixpanel is easy as most CDPs support Mixpanel as a data destination.
However, if you’re also using Mixpanel’s Messaging feature (which, is retiring soon) and wish to push data from your campaigns into your CDP, you will have to do so via the HTTP API. Neither Segment nor mParticle supports Mixpanel as a data source.
Therefore it is not enough to just look at the integration directory when choosing a Customer Data Platform — you need to ensure that the integrations serve your specific needs.
Working with data
What good is a Customer Data Platform if it doesn’t make it fun to work with all that delicious data? 😋
A CDP should empower marketing and growth teams as well as benefit product, engineering, and data teams. For that to happen, data must be accurate, accessible, and easy to act upon.
One of the core promises of a Customer Data Platform is data unification and identity resolution. In other words, a CDP is capable of identifying customers as they interact with your brand across different touch points — as long as those touch points are configured as data sources.
As a result, customer actions across different channels are consolidated into unified profiles, allowing you to create segments or audiences based on the following:
- Events and transactions that take place inside your apps
- Interactions with your brand across search and social
- Traits including user persona, preferences, and demographics
A good Customer Data Platform makes it easy to create audiences and export them to third-party tools. These dynamic audiences can then be used to improve the customer journey by personalizing the product experience and by engaging customers across various channels.
Marketers are able to create powerful segments and use those across the engagement and advertising tools they use. Growth and Product teams are able to push relevant in-app messages and experiences, gather feedback, run A/B tests and so on.
More importantly, reliance on engineering and data teams is alleviated since there is no longer a need to manually extract and merge data from disparate sources.
Everybody is happy and productive! 👊
Elephants in the room
The impact of security standards and pricing models is huge when it comes to adopting a Customer Data Platform. For a large number of companies, a CDP is the biggest investment in terms of both manpower and money. It is also not something that can easily be replaced.
Security and compliance are crucial in order to handle customer data, you know that already. That said, it only makes sense to address them once other requirements have been met.
CDP providers, whether established or not, will claim that data security is of the highest priority and that all the requisite privacy measures are in place. If well-known companies are customers, it’s easy to take their word for it and conclude your evaluation.
However, it is highly recommended that you fully understand the security standards and privacy practices of a Customer Data Platform before making a final decision.
In terms of pricing, CDPs generally charge based on the number of monthly tracked users or MTUs. Keep in mind that this number also includes anonymous visitors and is not limited to those who have an account with your app.
It’s good to keep in mind that pretty much every Customer Data Platform offers custom plans based on the business needs and the pricing can vary significantly as per the buyer’s negotiation skills. The lack of pricing transparency is the only contention I have toward CDP providers. 😔
Since you have read so far, I am assuming that you understand the value proposition of a Customer Data Platform and are convinced that it is something worth adopting, and not just a hot software category.
The market for CDPs is maturing and a handful of players that are true CDPs are leading the charge.
Segment’s acquisition by Twilio for $3.2B is testament to the above!